WASHINGTON: The International Monetary Fund warned yesterday that geopolitical risks in Ukraine and the Middle East are looming over a global economy already hit by slowdowns in the US and China.
After “negative surprises” from the United States and China, the global economy is now expected to grow only 3.4 percent this year, the IMF said, lowering its April estimate of 3.7 percent.
In 2013, the world economy grew 3.2 percent. The downgraded 2014 growth outlook reflects a “weak first quarter, particularly in the United States, and a less optimistic outlook for several emerging markets,” the IMF said in an update of its semiannual World Economic Outlook (WEO).
“Geopolitical risks have risen relative to April: risks of an oil price spike are higher due to recent developments in the Middle East while those related to Ukraine are still present.”
Heavyweight oil producer Iraq is under siege from an Islamist offensive, and fierce fighting between Israel and Palestinians in Gaza has raged for more than two weeks. The Ukraine crisis was exacerbated by the downing last week of Malaysia Airlines flight MH17 over rebel-held territory in eastern Ukraine that killed all 298 people aboard.
Russia, the target of US and European Union economic sanctions for its role in the separatist fighting, was likely to see its economy brought to the brink of recession this year, the IMF said.
It slashed its Russian growth forecast by 1.1 percentage point, to 0.2 percent, saying “activity in Russia decelerated sharply as geopolitical tensions further weakened demand.”
Separately, IMF spokesman William Murray warned the sanctions could have a severe impact on trade in the region, “particularly in eastern and central Europe and central Asia.”
As for the United States, the world’s largest economy, IMF on Wednesday lowered its 2014 growth forecast to 1.7 percent, from 2.0 percent in mid-June and 2.8 percent in April.
The US economy, accounting for nearly a quarter of the world’s output, shrunk by 2.9 percent in the first quarter, in part because of severe winter weather.
“It’s really a story of something which has just happened and that is behind us,” said Olivier Blanchard, the IMF’s chief economist, in discussing the WEO update. The IMF projected US growth will pick up in the remainder of the year, but not enough to offset the first-quarter drag. China, the world’s second-largest economy, will expand less than previously thought, the IMF said, lowering its forecast to 7.4 percent from 7.6 percent.AFP